How To Set Up An Investment Bank In Nigeria

Investment bank is a type of bank that acts as an intermediary that undertakes large and complex financial transactions on behalf other companies or government. Such financial transactions include underwriting/ issuing house for securities issuing companies and investors, facilitating merger of 2 competitors, as financial advisory and brokerage. Investment bank also handles pension funds.

There are there categories or types of banks in Nigeria under BOFIA

• commercial banks,
• merchant banks and
• specialised banks, this includes non-interest banks, mortgage banks, microfinance banks development banks,

No bank is authorized to carry out banking business in Nigeria except one licensed under any of these categories listed above. A bank may be licensed to operate as regional or national bank in compliance with rules, regulations and guidelines on licensing, authorization, operation and conduct of business which CBN issues from time to time.

Investment bank falls under the merchant banks category, and can be authorized to carry out investment banking business on regional or national basis.

How to Establish Investment Bank in Nigeria

To establish an investment bank in Nigeria, you must comply with all the laws guiding investment banking business. These laws include:

• Companies and Allied Matters Act (CAMA) 2020,
• Banking and other Financial Institutions Act (BOFIA) 2010
• Central Bank of Nigeria Act 2007
• Central Bank of Nigeria Regulations on Scope of Banking Activities & Ancillary Matters , No. 3, 2010
• Nigerian Stock Exchange Commission Act
• Nigeria Stock Exchange Regulations Act

There are therefore five processes of establishing investment bank in Nigeria

1. Feasibility study
2. Writing of business plan
3. Business incorporation
4. Banking license
5. Stock Market operator license

Feasibility Study 

Before setting up investment bank in Nigeria, you need carry out feasibility study. The feasibility will tell you if investment banking business opportunity is viable at the given time and place or not. A business that was feasible yesterday in a given place may not be feasible today due to economic and environmental changes. Feasibility study is a precursor to business plan, and you would need to submit a feasibility report of the proposed bank to CBN for issuance of operating license.

Business Incorporation

The first to do while establishing an investment bank  Nigeria is to register  your company to qualify to do business within Nigerian territory. A company intending to do investment and merchant banking business in Nigeria will have to register with the Corporate Affair Commission (CAC) as either a limited liability company or a public liability company, and maintain a minimum of N15,000,000,000.00 (Fifteen Billion Naira) initial paid-up share capital.

Business registration in Nigeria can be done within 48 hours either online or at CAC`s offices in all 36 states of the federation provided all the requirements are met.

Writing of Business Plan

Having carried out feasibility studies, it’s the time to write your business plan for the proposed bank. Business plan is a document that outlines how you intend to run your business, requirements and projections. It allows you to create business operations on paper and manipulate and evaluate scenarios without the risk of investing resources. If you want to source finance from venture capitalists, you will need to present a business plan to convince them that your business idea is worthwhile.

Application for Banking License

Bank licenses are issued by CBN under the Banks and other Financial Institution Act 2010. This is to ensure that persons (natural or legal) cannot be authorized to perform banking or financial services business in Nigeria without approval by the government. Central Bank of Nigeria as government institution establish by the Central Bank Act of 2007 is saddled with the responsibility of licensing, supervising and regulating of banks and other financial institutions in the country. See Advantages and Disadvantages of CBN Controlling Commercial Banks and other Financial Institutions.

Merchant banking license: This license allows financial institutions to provide professional services like wholesale banking or investment banking services as set out in guidelines made under the CBN Scope, Conditions and Minimum Standards for Merchant Banks Regulations No. 02, 2010.

 Stages and Requirements for Banking Licenses

There basically 3 stages of granting license to new bank in Nigeria by the CBN

1. Grant of Approval in Principle (Initial approval)
2. Grant of final approval
3. Pre-commencement of operations requirements

Grant of Initial Approval

To get approval in principle, you have to submit formal application for grant of license.

Required information and documents

• A copy of feasibility study of the proposed bank
• Certificate of incorporation
• A copy of the Memorandum and Article of Association of the proposed bank
• List of names and particulars of shareholders, first directors, and principal officers of the proposed investment bank
• Payment of prescribed application fee
• Deposit of the minimum of initial paid-up capital of N15,000,000,000.000 by the the shareholders of the proposed bank
• And any other information, documents and reports CBN may, from time to time.

The application is usually addressed to the Governor, CBN Governor.

Upon fulfilment of these conditions, the CBN Governor may issue a license with or with further conditions, or decline to issue the license.

Stock Market Operator License

The merchant banks also require approval by Security and Exchange Commission to operate in the capital market. The Securities and Exchange Commission also has oversight and regulatory purview over investment banks in Nigeria, to the extent that it relates to their capital market activities.